Court hears MARAD case to dismiss port lawsuit
After nearly six years in court, a lawsuit against the federal government worth hundreds of millions of dollars to Anchorage currently hinges on whether or not a commonly invoked working pact can constitute a binding agreement.
Attorneys for the Municipality of Anchorage and the U.S. Maritime Administration spent Feb. 18-19 in a San Francisco courtroom sparring over the enforceability of a memorandum of understanding officials for the city government and federal agency signed in 2003 to coordinate work on the since-failed Port of Anchorage Intermodal Expansion Project.
Department of Justice attorneys representing the Maritime Administration, commonly referred to as MARAD, argued that Congress tasked the agency with managing the project through language in a February 2003 omnibus federal spending bill that allowed MARAD to accept and spend state and local money on the work, according to transcripts of the proceedings.
They insist the MOU simply clarified Anchorage officials’ decision-making authority for the project and it was the city’s responsibility to provide requirements and direction to MARAD for the project.
Vincent Phillips said on behalf of MARAD that it was the February 2003 spending bill, not the MOU signed the following month, that acted as the “operative agreement” for the project and therefore the federal government is not liable for all of the work that went awry.
“Anchorage, in their lobbying efforts convinced — induced Congress to spend $140 million for this project by saying Anchorage was already going to spend $163 million for the project. So what Anchorage wanted the government to then do — wanted Congress to then do was essentially make it a federal project and allow a federal agency to not only spend the federal appropriation to build the project but also spend Anchorage’s money,” Phillips told Federal Claims Court Judge Edward Damich.
Anchorage is seeking upwards of $320 million from MARAD to recoup the $163.4 million of state and municipal money spent on the project as well as the more than $180 million that port officials estimate it will cost to partly remove and stabilize 35 acres of fill added to the north end of the port during the expansion project, according to city attorneys.
The federal government also contributed $140 million to the project through Department of Transportation grants and Defense allocations.
Overall, MARAD accepted $306.4 million of federal, state and local money for the construction project and spent $302 million of that on the work, according to court filings.
State lawmakers additionally approved another $128 million in grants and bonds for the project that was matched by $9 million from the port after work stopped in 2010, but that money stayed with Anchorage and was not transferred to MARAD. Port officials have since used part of the remaining money to fund a new design for a port overhaul.
Lengthy legal battle
The Municipality of Anchorage sued MARAD in March 2014 alleging the agency’s mismanagement of the project ultimately led to improperly installed — and subsequently damaged — steel sheet piling that served as a foundational element of the expansion project dock design.
In sum, more than $300 million of public money was spent on the project with little to show for it.
The municipality commissioned MARAD to oversee the expansion project; it began in 2003 as a way to direct federal funding to the Anchorage port, which is designated by the Department of Defense as a national strategic port for its importance to troop and equipment deployments from Alaska bases.
MARAD, in turn, hired Integrated Concepts and Research Corp., or ICRC, to manage the project.
ICRC was owned by Koniag Inc., the Alaska Native Regional corporation for Kodiak, when the project started but has since been sold to a Virginia company.
The MARAD-Anchorage relationship ended in 2012.
The municipality first sued a suite of contractors, including ICRC, involved in the dock design for the expansion project in March 2013. That lawsuit netted $19.3 million for Anchorage through seven individual settlements made in early 2017.
A wholly new set of municipal and port officials have since started work on a scaled-back port modernization program, which aims to replace the existing infrastructure at the port without significantly adding new space, which the expansion project sought to do.
A final price for the new project is still being revised — an eye-popping estimate of $1.9 billion emerged last year that is still being whittled down — but city officials acknowledge it will very likely be many hundreds of millions of dollars. The members of Alaska’s congressional delegation have said Anchorage needs to resolve its lawsuit with MARAD before they can seek large amounts of additional federal funding for the port modernization effort.
Work resumes without resolution
The Anchorage Assembly also officially renamed it the Port of Alaska in 2017 as a means of signifying the city-owned port’s importance to the rest of the state. The port is the primary import terminal for all of the consumer goods, fuel, building materials and other things destined for communities across mainland Alaska.
Major work is scheduled to resume at the port next year with the first of two construction seasons to build a new, roughly $220 million petroleum and cement terminal at the port — a full 10 years after the first project was stopped.
In November, the U.S. DOT awarded a $25 million infrastructure grant to port officials for construction of the new commodity terminal. MARAD announced a similar $20 million grant to the port Feb. 11.
What’s in an MOU?
For their part, city attorneys stressed during the two-day “mini-trial” intended to fully vet MARAD’s summary judgment motion filed last June that the 2003 MOU was implemented as a binding contract, even if it wasn’t explicitly titled as one.
Anchorage and MARAD also signed a second MOU in 2011 to “more substantively involve” city and port officials in the project, the 2011 memorandum states.
Municipal attorney Jason Smith said the MOUs were used in a manner similar to the countless other contracts the federal government enters into in that at its core it contained “consideration,” or one thing in exchange for another.
“Consideration, at its most basic, is a promise for a promise and that is exactly what both the 2003 MOU and the 2011 MOU demonstrate. There is no dispute because MARAD admits it agreed to provide the services of federal project oversight, contract management and administration of funds to the Municipality of Anchorage,” Smith told Judge Damich.
In exchange for oversight, Anchorage agreed to help fund the project, Smith said.
He repeatedly pointed to a common contract clause also found in both MOUs that allowed MARAD to withhold 3 percent of all project funding for administrative costs the agency incurred from managing the project.
The administrative fee paid the salaries of contractors working on multiple projects, covered intra-government audit costs and other ancillary expenses, according to Smith.
Phillips countered that MARAD actually withheld only $3.2 million for its administrative costs — just more than 1 percent of the total spend — and that money all came from the $140 million federal contribution to the project. A true 3 percent administrative fee would’ve been more than $9 million, Phillips noted.
“We’re saying no fee was paid to retain services and Anchorage didn’t actually retain MARAD’s services,” Phillips said.
“The 2003 MOU was merely a means by which MARAD implemented its statutory obligation from Congress to administer the project,” he added later.
However, Smith rebutted that in his closing arguments by noting MARAD used state and port money in part to secretly settle two contract disputes with ICRC in 2012 and 2017 totaling $15.4 million.
According to accounting records submitted by government attorneys, MARAD paid approximately $9 million of state and port money to ICRC in October 2012 as part of an $11.3 million settlement and another $1.6 million of nonfederal project funding in a $4.1 million January 2017 settlement.
Municipal attorneys allege those settlements were deliberately made without the city’s knowledge, which MARAD’s lawyers don’t dispute.
“The municipality wishes that the government had restricted itself to 3 percent of the state (and) municipal funds,” Smith said, adding that Anchorage officials only learned about the 2017 settlement through disclosure of lawsuit-related documents last December.
Federal attorney Phillips also argued more broadly that MARAD was not under contract with the Municipality of Anchorage because the agency derived no tangible benefit from the project.
The federal benefits, he stressed, were indirect and went to the Department of Defense, as the final design included added developments to account for the military’s needs. Among those was an access road built between the port and nearby Joint Base Elmendorf-Richardson to allow for direct troop and equipment transports without using public roads.
Another part of the expansion portion of the project was adding dock space requested by the military.
Former port finance administrator Cheryl Coppe testified that she helped coordinate MARAD’s involvement in the project and agency officials discussed its military uses. But they also saw it as a “demonstration project” to prove up the agency’s project management chops, according to Coppe.
“It was a first-of-its-kind project; the Maritime Administration had never before been involved in port infrastructure development. They had never been involved as a federal lead agency, unlike their sister administrations in the DOT,” Coppe testified in questioning from Smith.
Congress subsequently tasked MARAD with marine infrastructure projects in Hawaii and Guam after MARAD took control of the Anchorage port work in 2003.
A 2013 DOT Inspector General’s audit of the projects concluded that problems arose in the Anchorage and Hawaii projects due to the agency’s narrow interpretation of its responsibilities.
“Rather than take on a comprehensive role in developing and overseeing the port infrastructure projects, MARAD’s main role has, until recently, been limited to obligating and distributing funds to contractors for project tasks, such as project oversight, program management, engineering, design, and construction,” the 2013 IG report states.
Failing to draft independent cost estimates — a step required by general federal and U.S. DOT regulations — could also have led to cost overruns at Anchorage, Hawaii and Guam, the report states further.
Under cross examination by MARAD attorneys, Coppe said it was assumed before federal money became available that only port and state funds would be used on the project. She said city officials — with the help of Alaska’s congressional delegation — went to MARAD for quicker procurement and overall project development once it became clear federal money could be used.
MARAD’s attorneys added that even if the military did garner benefits from the project they were indirect and minimal; but Smith countered that MARAD debunked that argument itself.
“There’s no dispute that the military gained direct benefits as a result of this contract arrangement. We know it’s undisputed because MARAD all the way up until July of 2019 bragged about all of these benefits on its website and blast it out to the general public,” Smith said in his closing arguments.
He claimed statements promoting the Anchorage port project on MARAD’s website were taken down at the behest of the agency’s attorneys.
Judge Damich did not indicate when he would rule on the government’s motion for summary judgment, which was the impetus for the two days of arguments and witness testimony.
Municipal attorneys have said they’re hopeful the case can reach a bench trial sometime this year.
Elwood Brehmer can be reached at [email protected].